New York Times Op-Ed: The Clinton Tax Challenge for Republicans

After skipping town for the summer with a long list of unfinished business, Republicans are back home in their districts, scrambling to find an argument to explain why they blocked middle class tax relief for American families, after the Senate passed a bill and the President indicated he would sign it. By leaving town, they are continuing to hold middle class tax cuts hostage until they get additional tax breaks for the wealthiest Americans that our country cannot afford.

You have heard us say this till we are blue in the face, so don’t take our word for it, just ask Bruce Bartlett, a Republican who held senior policy roles in the Reagan and George H.W. Bush administrations.

Writing in the New York Times, Bartlett takes apart Republicans’ revisionist history on the tax rates under Bill Clinton.

Key Point: “Republicans are adamant that taxes on the ultra-wealthy must not rise to the level they were at during the Clinton administration, as President Obama favors, lest economic devastation result. But they have a problem – the 1990s were the most prosperous era in recent history. This requires Republicans to try to rewrite the economic history of that decade.”

The full article is below:

New York Times: The Clinton Tax Challenge for Republicans

By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of "The Benefit and the Burden: Tax Reform - Why We Need It and What It Will Take."

Republicans are adamant that taxes on the ultra-wealthy must not rise to the level they were at during the Clinton administration, as President Obama favors, lest economic devastation result. But they have a problem - the 1990s were the most prosperous era in recent history. This requires Republicans to try to rewrite the economic history of that decade.

In early 1993, Bill Clinton asked Congress to raise the top statutory tax rate to 39.6 percent from 31 percent, along with other tax increases. Republicans and their allies universally predicted that nothing good would come of it. They even said that it would have no impact on the deficit.

Ronald Reagan himself was enlisted to make the case the day after President Clinton unveiled his program. Writing in The New York Times, the former president said, "Taxes have never succeeded in promoting economic growth. More often than not, they have led to economic downturns."

Of course, Reagan himself raised taxes 11 times between 1982 and 1988, increasing taxes by $133 billion a year, or 2.6 percent of the gross domestic product, by his last year in office. Presumably he supported these measures because he thought they would raise growth; otherwise he could have vetoed them.

Speaking before the Heritage Foundation's board on April 16, 1993, former Representative Jack Kemp, Republican of New York, predicted budgetary failure from the Clinton plan. "Will raising taxes reduce the deficit?' he asked. "No, it will weaken our economy and increase the deficit."

Conservative economists were often quite specific about exactly what the negative impact of the president's plan would be. On May 8, The New York Times interviewed several. John Mueller, a Wall Street consultant, said inflation would rise to "at least 5 percent within the next two or three years."

In fact, the inflation rate did not rise at all until 1996 and then went up to 3.3 percent before falling to 1.7 percent in 1997 and 1.6 percent in 1998.

In the same article, the economist John Rutledge also saw higher inflation from the Clinton plan and said it would raise the deficit. "Look for a higher, not lower, deficit if the Clinton package passes Congress," he said.

According to the Congressional Budget Office, the federal budget deficit fell every year of the Clinton administration, from $290 billion in 1992 to $255 billion in 1993, $203 billion in 1994, $164 billion in 1995, $107 billion in 1996, and $22 billion in 1997. In 1998, there was a budget surplus of $69 billion, which rose to $126 billion in 1999 and $236 billion in 2000 before it was dissipated by huge tax cuts during the George W. Bush administration.

Among the most detailed economic analyses of the negative impact of the Clinton plan was one made by the economist Gary Robbins in August 1993. He predicted that G.D.P. would be $244.4 billion lower in 1998 compared with the C.B.O. baseline. He did not provide the baseline figure, so I looked it up. In its January 1993 projection, the budget office put G.D.P. at $7,953 billion in 1998. Subtracting Mr. Robbins's estimate of the economic cost of the Clinton plan yields an estimated G.D.P. of $7,709 billion in 1998.

If one goes to the government Web site where the G.D.P. figures appear and looks up the one for 1998, one finds that it was $8,793 billion. Thus Mr. Robbins was off by more than $1 trillion. G.D.P. was 14 percent higher than he predicted.

Nevertheless, Republicans continue to rely upon Mr. Robbins's estimates of the effects of the economic impact of tax cuts, which always show hugely positive effects from tax cuts. Recently, he was the author of the 9-9-9 tax plan put forward by Herman Cain as he sought the Republican presidential nomination last year.

In my posts on May 22, 2012, and Nov. 22, 2011, I presented other data on the positive economic consequences of President Clinton's high-tax policies compared with the poor economic consequences of President Bush's low-tax policies. Nevertheless, it is conservative dogma that we need more policies like President Bush's and must not, under any circumstances, replicate President Clinton's policies.

However, there are still a few people around old enough to remember the 1990s and 2000s. Even without looking up government statistics, they know that the 1990s were a time when the economy boomed, while the 2000s were a period of economic stagnation.

This has created a problem for Republicans, leading to economic revisionism.

Last year, the Republican anti-tax activist Grover Norquist asserted that the boom of the 1990s resulted from the election of a Republican Congress in 1994, because business people and financial markets somehow knew this would lead to a cut in the capital gains tax. The capital gains tax was in fact cut in 1997. But the boom and the improvement in the budget deficit long predated that event.

In July, Charles Kadlec, a Forbes columnist and author of the book "Dow 100,000" (New York Institute of Finance, 1999), insisted that it is a "myth" that the economy prospered under President Clinton's policies. He offers no actual evidence for this assertion except to say that the economy would have done even better under Reagan-type policies. Like Mr. Norquist, he attributes anything good that happened in the 1990s to the Republican Congress, which did not take office until 1995.

Last week, the investor Edward Conard, author of a recent book glorifying the ultra-wealthy, addressed the Republicans' Clinton problem in a commentary in The Wall Street Journal. He said that the boom of the 1990s was the result of Internet-driven growth and that President Clinton was just lucky that it happened on his watch.

Maybe so, but Mr. Conard left unexplained why the budget went from a large deficit to a large surplus simply because of the Internet or why the big tax cuts on the rich he favors failed to raise growth one iota in the 2000s.

I would not argue that tax increases are per se stimulative. It all depends on circumstances. But it is clear from the experience of the 1990s that they can play a very big role in reducing the budget deficit and are not necessarily a drag on growth. And the obvious experience of the 2000s is that tax cuts increase the deficit and don't necessarily do anything for growth. Those arguing otherwise need to make a much better case than they have so far.